Mending the Burst Canadian Energy Bubble
- January 6, 2016
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A recurring Alberta theme the past decade, in some circles, albeit for the most part seen as little more than a public relations exercise, has been the oil sands as revenue stream for Canada’s transition from petrostate to “green energy superpower”.
Unfortunately, in today’s world, that $15 trillion looks like a mirage even as the prospects for a green future and the need to finance that future becomes increasingly certain.
As Albert’s Environment Minister, Shannon Phillips, recently pointed out, “We are entering a world that is going to be constrained with respect to carbon.”
The extent of that constraint however is probably far greater than most Canadian, particularly Alberta, politicians would care to admit. At the recently concluded Paris climate talks Canada’s Environment Minister, Catherine McKenna, endorsed a call to hold global warming to no more than 1.5 degrees Celsius above pre-industrial levels and that call was heeded with the concluded agreement to keep “well below” 2 degrees.
Even keeping to 2 degrees, a study lead by Christophe McGlade of University College London suggests, would require foregoing the burning of a third of the world’s oil reserves, half of its gas reserves and keeping over 80 per cent of the coal remaining in the ground and of the burnable oil virtually none would come from the Alberta oil sands due to the high cost and high emissions associated with their recovery.
Instead of having trillions to spend to develop renewable energy and fulfill their Paris commitments to the environment, here and here, the Alberta government projects a budget deficit of $6.1 billion for fiscal 2015-16 and $18 billion in total over the next 4 years and the newly elected federal Liberal government of Canada says the $2.3-billion surplus projected by the previous Conservative government for this year is more likely to be a $3-billion deficit on top of the $10 billion deficits they promised during the election campaign to run each of the next three years to kick-start the Canadian economy through infrastructure spending.
A large part of the revenue shortfall of both governments has come about as a result of the slump in oil prices from about $60 US per barrel a year ago to less than $40 today.
Canada is the 5th greatest producer of oil and has the 3rd largest reserves but that doesn’t mean much to the Canadian taxpayer or the provincial owners of the resource when the cost of production is higher than the market value of the oil and when the 2nd largest, and lowest cost oil producer, is set on undercutting the competition to ensure it has nothing left in the ground once the environmental limits to burning fossil fuels has been reached.
Alberta and Canada as a whole are essentially petrostates absent the benefits of state control of the resource, the price it can demand for that resource or the revenue derived from its sale.
The Alberta Heritage Savings Trust Fund is essentially a sovereign wealth fund; the only one in the country, but of the close to $200 billion in non-renewable resource revenue that has been generated since its inception in 1976 the value of the fund, as of March 31, 2014, was only $17.5 billion, less than the projected accumulated deficits for the province the next 4 years.
Both the provincial and federal governments have pledged to reduce carbon emissions but their most vital concern is the advancement of the well-being of their citizens.
For too long they have financed that advancement on the back of uncertain petroleum revenues that are now drying up and there is no immediate, recognized, replacement.
Salvation, at least in the short run, would emerge in the form of technology that produces bitumen at no cost, without carbon emissions and that could generate sufficient revenue that the country and province could affordably transition away from the boom and bust cycle of the oil industry to a sustainable future.
In the absence of such a miracle it is hard to see how the environmental undertakings of Canadian politicians can be financed.
Australia, like Canada, depends heavily on resource extraction to finance its economy and both countries are confronted by similar economic realities.
Former Australian Prime Minister Bob Hawke suggests that beyond the obvious alternatives of reducing expenditures, increasing taxes or some combination of the two, in the face of the new reality, there is another alternative; a new source of revenue, which for Australia he suggests should be taking the world’s nuclear waste.
In other words he is prepared to be innovative in the face of stark reality.
There are vast, remote and dry regions of Australia, which is a stable democracy thus it is an ideal location for storing spent nuclear fuel; a service for which a global clientele appears to be willing to pay in the vicinity of $100 billion dollars (about double the projected deficits of Canada and Alberta over the next 4 years).
Canada is also a stable democracy. Rather than being dry however it has large tracts of bitumen, a recognized sealant for underground repositories, into which the world’s waste can be placed, for a fee.
Over the long term the heat and ionization radiation of that waste would cause the highly viscous bitumen to flow to a producing well and split some of the low grade bitumen molecules into more valuable fractions.
It is likely such an effort would have to be federally controlled and there is a precedent, the Suffield Experimental Station.
DRDC Suffield was a research facility established in 1941 as a joint British/Canadian biological and chemical defence facility. It is a 2690 square kilometer block of land in southeastern Alberta that by the end of the Second World War housed 584 personnel trained in chemistry, physics, meteorology, mathematics, pharmacology, pathology, bacteriology, physiology, entomology, veterinary science, mechanical and chemical engineering. This land was expropriated by the Province of Alberta on behalf of the Canadian Federal Government to which it was leased for ninety-nine years at a cost of one dollar per year to support the war effort.
Suffield is an area within which efforts were undertaken that would today be seen as no less controversial or dangerous than the disposal of nuclear waste.
After the war the block was transferred from the province to the federal government in exchange for a large number of army and air camps and buildings from the Dominion Government and it has subsequently been used for large, experimental, chemical and explosive efforts and training.
In 1974 the federal and provincial governments signed a surface access agreement for the purpose of developing petroleum reserves in the area and subsequently 14,000 oil and gas wells have been drilled on the site, mostly by the Alberta Energy Company (AEC) which was formed at the height of the OPEC oil embargo, with provincial government support. The province held 50 percent of the initial shares in an effort intended to try and lessen dependence on foreign oil.
Today that same oil is undercutting the oil sands and many see climate change as no less a threat than was faced in the middle of the twentieth century.
Subsequently the province divested its interest in AEC, which became one of Canada’s largest private-sector independent oil and gas exploration and production companies prior to merging with PanCanadian Energy Corporation in 2002 to form Encana.
There is every reason to suspect nuclear waste disposal and bitumen recovery from using the heat of spent nuclear fuel, on expropriated lands, can today be every bit as lucrative a proposition.
The private sector aren’t about to take on such an effort, at least not initially and it doubtful there will be any major, new, oil sands efforts in any event as things currently stand.
Besides a private initiative isn’t likely to turn around and funnel revenues into an energy source that can actually unrealized the radiative imbalance created by global warming by moving surface heat through a heat engine into the ocean abyss; an effort that can unwind the damage caused by the burning of fossil fuels (see here and here) and fulfill the commitment to a 1.5 degree temperature increase.
The Alberta and Canadian governments have every opportunity to live up to their commitments. All that is required is the expenditure of a little political capital and some initiative.
It would be far better that we pay are way into the future we want for our children rather than finance that future with debt for which our children will ultimately be responsible.
Photo Credit: Canada Energy Bubble/shutterstock